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UK Regulator Extends the Senior Manager and Certification Regime

On February 4, 2016, the Financial Conduct Authority published a Policy Statement and final rules on the application of the Senior Manager and Certification Regimes to wholesale market activities, such as algorithmic and high frequency trading. The SM&CR enter into force on March 7, 2016. The rules apply to banks, building societies and investment firms designated by the Prudential Regulation Authority. The new rules extend the Certification Regime to individuals who carry out two new significant harm functions: (i) the new “client dealing” function, which includes advising on investments other than non investment insurance contracts and any associated dealing and arranging, acting as an investment manager or acting as a bidder’s representative (this new function is subject to the FCA’s new definition of “client” which aims to capture all clients, including traditional retail clients); and (ii) “algorithmic trading.” Under transitional rules, the Certification regime requires firms to identify the staff members that fall into the two new functions and train them on the new conduct rules by September 7, 2016. The commencement date for the requirement for firms to certify all staff that carry out significant harm functions remains March 7, 2017.

The Policy Statement also sets out the initial feedback received on the PRA and FCA’s joint consultation on regulatory references, i.e., employment references passed between firms when an individual moves roles. Regulatory references are also relevant to candidates applying for new roles, including senior management functions, significant harm functions and other roles within insurance firms and credit unions. The joint consultation on regulatory references raised questions that require further consideration, such as a need for transitional arrangements or delayed implementation so that firms have enough time to set up systems and processes to support the new requirements. The FCA is therefore delaying the finalization of the new referencing regime until after the commencement of the SM&CR, though has decided that the existing and specific referencing rules will, as an interim measure, remain in place and come into effect on March 7, 2016. The PRA has also stated that it aims to publish initial rules in mid February 2016 on regulatory referencing (that will apply from March 7, 2016), followed by a second set of rules that would be published together with the FCA on areas that require further consideration.

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